2012 (5) TMI 161 - AT - Income Tax

Period of investment for claiming exemption u/s 54EC - held that - the interpretation placed by the CBDT in consultation with the Ministry of Law to the condition of making investment within six months from the date of transfer in section 54EC would support the claim of the assessee in this case also for exemption from capital gain with respect to the impugned sum of Rs 50 lakhs invested in specified assets on 3.8.2007 and 27.10.2007. - In the present case, admittedly the impugned amount of sale proceeds have been received by the assessee much after the date of transfer - investments have been made within six months of receipt of such consideration. Therefore, having regard to the interpretation placed by the CBDT to understand the requirement of making investment within six months from the date of transfer in section 54EC of the Act we are inclined to uphold the plea of the assessee for exemption from tax on capital gains qua impugned amount of Rs 50 lakhs. Claim under section 54B denied as the assessee would not put such land for agricultural purposes Held that - No material brought on record by the AO that the new land purchased for agricultural purposes is being actually put to use for any other purpose - only an apprehension on the part of the AO cannot be accepted to disallow the claim Observation by AO that the assessee had ventured into a real estate business and therefore there was no possibility of the assessee undertaking agriculture on the new land purchased leads to no conclusion to disallow the claim - in favour of assessee.

Summary

Issues Involved:
1. Year of taxability of capital gains.
2. Adoption of sale consideration for computation of capital gains.
3. Entitlement to exemption under section 54EC of the Income Tax Act.
4. Entitlement to exemption under section 54B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Year of Taxability of Capital Gains:
The primary issue was whether the capital gains arising from the transfer of land should be taxed in the assessment year 2006-07 or 2007-08. The assessee argued that the transfer should be considered in the year the joint venture agreement was registered (23.01.2007), while the Assessing Officer (AO) and Commissioner of Income-tax (Appeals) (CIT(A)) held that the transfer occurred on the date of the development agreement (12.07.2005). The Tribunal upheld the view of the AO and CIT(A), citing the Bombay High Court's decision in Chaturbhuj Dwarkadas Kapadia, which clarified that transfer under section 2(47) of the Act includes any transaction allowing possession to be taken in part performance of a contract as per section 53A of the Transfer of Property Act. Thus, the capital gains were taxable in the assessment year 2006-07.

2. Adoption of Sale Consideration for Computation of Capital Gains:
The dispute was whether the sale consideration should be Rs. 2,50,00,000 (as per the original agreement) or Rs. 4,90,00,000 (as per the correction deed). The AO and CIT(A) adopted the higher amount. The Tribunal agreed, noting that the correction deed revised the consideration to Rs. 4,90,00,000, and this amount should be used for computing capital gains. Thus, the consideration of Rs. 4,90,00,000 was upheld.

3. Entitlement to Exemption under Section 54EC:
The issue was whether the assessee was entitled to exemption under section 54EC, given that the investment in eligible bonds was made more than six months after the date of transfer. The AO and CIT(A) denied the exemption, as the investments were not made within six months from 12.07.2005. The Tribunal, however, allowed the exemption for investments made within six months from the receipt of sale consideration, citing CBDT Circulars that emphasize the purpose and spirit of the section. Thus, the Tribunal granted exemption under section 54EC for investments made on 3.08.2007 and 27.10.2007.

4. Entitlement to Exemption under Section 54B:
The AO denied the exemption under section 54B, arguing that the land was not purchased for agricultural purposes, given the assessee's involvement in real estate. The CIT(A) disagreed, noting that the AO's inference was without basis and that the assessee had a background in agricultural activities. The Tribunal upheld the CIT(A)'s decision, stating that the AO's presumption was unfounded and the claim under section 54B was allowable as there was no evidence that the land was not used for agricultural purposes.

Conclusion:
The Tribunal concluded by partly allowing the appeals of the assessee and dismissing the appeals of the Revenue. The capital gains were taxable in the assessment year 2006-07 at the revised consideration of Rs. 4,90,00,000, but the assessee was entitled to exemption under section 54EC for investments made within six months from the receipt of sale consideration. Additionally, the exemption under section 54B was upheld.